Germany Drags Its Feet on Third Bailout as Debt Payment Looms Over Athens

Greece needs bailout cash to make a payment to the European Central Bank by Aug. 20. Once again, Berlin stands in the way.

Teetering on the edge of bankruptcy, Greece inched closer Monday to another payment deadline without a bailout deal with its international creditors. German officials are now raising the prospect that the billions of euros Greek Prime Minister Alexis Tsipras needs to stay solvent could be more elusive than the rest of Europe thinks.

Ralph Brinkhaus, deputy parliamentary floor leader for German Chancellor Angela Merkel’s conservative ruling coalition, told Deutschlandfunk radio on Monday that the sides are still far apart on when Greece would get a third bailout and how much Athens should get. Greece needs to pay the European Central Bank back 3.2 billion euros, or about $3.5 billion, by Aug. 20.

“There are a lot of questions that remain open,” Brinkhaus said. Then, however, the chancellor’s ally made clear Germany’s preference of giving Greece a slimmed-down bailout of an additional 20 billion euros, or about $22 billion. The European Union and the International Monetary Fund are leaning toward a more meaty cash infusion of between 30 to 35 billion euros. That would be the first payment of the total bailout worth 86 billion euro, or about $94 billion.

“The more money is handed out in one stroke, the less leverage one has to stop payments if the reform process in Greece does not pan out as planned and as promised,” Brinkhaus said. “A lot of trust has been lost in recent months.”

Speaking separately — but fully in sync — German Finance Ministry spokesman Juerg Weissgerber urged “quality before speed” and said Athens would have to adhere to strict conditions and prove it has begun to reform before Tsipras gets his hands on Europe’s cash. Germany is the largest contributor to the Greek bailout fund. But Germans are increasingly impatient with Europe’s efforts to bring Athens back into the black: 56 percent of 1,380 Germans polled in a recent YouGov survey said the planned deal is a bad one.

“It is sensible — that is our belief — to fix the size of the first payment tranche to the extent of the reforms implemented,” Weissgerber said at a press conference Monday. “That means strict conditionality for financial help.”

European Commission spokeswoman Annika Breidthardt said Monday she believes a deal is possible by the Aug. 20 deadline.

The Greek debt crisis has been tying German politicians in knots for years. But the tensions in Berlin escalated this summer after Athens missed a payment to the IMF. Many of Merkel’s coalition members, including some of her staunchest supporters, are skeptical of continued aid but reluctant to abandon their chancellor. Merkel, in turn, does not want a country abandoning the euro as part of her legacy, as Joerg Wolf, editor in chief of Atlantic-community.org, a Berlin-based think tank, told FP recently. Yet conservative lawmakers are increasingly backing away from an ongoing Greece bailout. In a vote as recently as a month ago, 60 German lawmakers said they were against negotiating the third bailout with Greece. That’s more than double the number of dissenters from when lawmakers considered extending a payment to Greece last February.

Since Greece agreed to accept strict austerity demands by Germany to get its hands on a bailout, talks between Athens and its creditors — the ECB, the IMF, the European Commission, and the emergency loan-generating European Stability Mechanism — to free up the first tranche of cash have been slowed by Berlin’s intransigence. Brinkhaus is the latest official close to Merkel hinting at tougher penalties for Tsipras, who acquiesced to harsh spending cuts just weeks after taunting Europe with a state referendum where his voters rejected the measures.

One of the most vocal critics of the bailout is German Finance Minister Wolfgang Schäuble. Even as Greece relented to Europe’s demand, Schäuble called for Greece to take a “timeout” and Grexit, or leave the eurozone, for five years. Schäuble has been in parliament since 1972 and refuses to consider allowing Greece to restructure its debt, despite his own acknowledgement that it is necessary.

Brinkhaus’s comments Monday follow a report last week in Germany’s Bild newspaper, which quoted one unnamed German official saying a deal can’t be completed by Aug. 20. Germany’s parliament, the Bundestag, has to vote to approve sending money to Greece before that day, meaning a deal would have to be in place by Aug. 16 or 17 to give lawmakers time to review it and determine its fate.

Ahead of the deadline, one of the party’s leaders, Volker Kauder, told the Welt am Sonntagnewspaper that there could be punishments for lawmakers who don’t approve the package.

His peers within Merkel’s coalition didn’t react well to the threat.

“Such a threat does not impress me at all,” fellow parliamentarian Christian von Stetten told Bild in a story published Monday. “Not a single new argument has been presented for giving more billions to Greece.”

In a research note circulated Monday morning, Mujtaba Rahman, the head of the Eurasia Group’s European practice, said getting the quick deal Greece needs is becoming increasingly tougher in the German capital.

“The sentiment in Berlin is again one of frustration with the European Commission,” Rahman said, adding that the IMF also fears a rushed deal would prolong the crisis, not end it.

Photo credit: Sean Gallup/Getty Images

David Francis was a senior reporter for Foreign Policy, where he covered international finance. @davidcfrancis